Should States Tax Online Affiliate Programs? Overstock and Amazon Say No Way


Last year, New York and a few other states started taxing online affiliate programs, in which website operators link to retailers and then get a commission on any business generated from their site. The logic behind it was that online affiliates constituted a "physical presence," akin to having a plant, warehouse, retail store, etc.

While the Supreme Court ruled in the early '90s that it was too onerous to expect catalog and online retailers to collect sales tax in the 7,000 taxing jurisdictions in the U.S., everyone involved agrees that if you have a bricks-and-mortar operation somewhere, you must collect the relevant sales tax. Hence, Utah-based Overstock collects tax on sales within the Beehive State. But in the wake of the New York law, Amazon and Overstock pulled their affiliate programs for Empire-State-based websites and launched a still-pending suit to overturn the law. Thousands of websites were shut out of affiliate status as a result.

Due to similar laws, reports the Los Angeles Times, Overstock has just pulled its online affiliate program from California, Hawaii, North Carolina, and Rhode Island. Amazon has also pulled its program from Rhode Island and North Carolina.

"It's awful to have to terminate these relationships with affiliates simply because they live in states where unconstitutional laws are being passed," said Patrick Byrne, Overstock.com's chairman and chief executive. "However, politicians have to remember that a tax is a price that government charges for a service, and when they raise their prices, we're going to buy less of their services."

LA Times bit here.

Byrne and others argue that catalog and online retailers shouldn't have to pay the same type of tax because they don't put the same sort of stress on services and infrastructure that local businesses do. As he told Reason.tv in a recent interview, Overstock and its employees aren't using as much water, electricity, health and education services, you name it, in places where it simply ships in merchandise.

What do you think, Hit & Runners? Is that a good argument, persuasive even to those who disagree initially?

Here's Byrne talking it up at Reason.tv (go here for embed code, related vids, etc):